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Integration: Incubator to Dinner Table

Every morning at six at Dachan Wanda (Tianjin) Co.'s hatchery on the outskirts of Tianjin, tens of thousands of little chicks ride down a conveyor belt before cascading onto a turntable like a small yellow waterfall. A crew of more than 10 employees picks out the acceptable chicks and packs them into cartons. The chicks are then delivered to contracted grow-out houses on farms within a 120-kilometer radius of the hatchery.

All of the feed used to raise the chickens is supplied by DaChan's nearby feed mill. Thirty-eight days later, Dachan collects the grown "broilers" and returns them to its factory, where they are turned into chicken breasts, legs and wings. That same evening, the meat is delivered to Beijing's KFC outlets and cooked into crispy, juicy fried chicken.

KFC isn't the Taiwan-based company's only prominent customer. Dachan's strict quality control system at its Tianjin production base so impressed the Beijing Olympic organizing committee that it was the only supplier approved to supply chicken for the Summer Games in August.

Dachan has forged a network of seven major production bases throughout northern and northeastern China, completing a vertically integrated production line that extends from feed production, breeding and hatching to slaughtering and meat processing.

Now one of China's two largest chicken suppliers, with deliveries of 30,000 tons per year, Dachan meets the needs of a third of KFC's Beijing outlets and all of its Tianjin outlets.

With its strong share of China's domestic market, this more than half-century-old food conglomerate saw revenues grow 42 percent in 2007 to an all-time high of NT$55.4 billion, and the group's Taiwan-listed Great Wall Enterprise Co., Ltd. and Hong Kong-listed DaChan Food (Asia) Limited were both ranked among CommonWealth Magazine's top 1,000 listed companies of Greater China.

The DaChan Great Wall Group is one of Taiwan's rare food companies that has developed a deep presence in foreign markets. Beginning in 1984, incumbent DaChan Food (Asia) chairman and executive director Mark Han plotted the group's international deployment, eventually developing interests in Vietnam, Indonesia, Malaysia and China.

"If we hadn't expanded out of Taiwan, DaChan Great Wall would have been at best the biggest company in the industry in Taiwan, no matter how well we did. It would have been very difficult for us to set the pace in Asia," says Han's brother and DaChan Great Wall Group vice chairman Han Jia-chen. He was the first of his family's four brothers to set out to China to open a new frontier for the company.

Repositioning as an Animal Protein Supplier

The group got its start over a half-century ago as a small soybean crushing factory that made soybean oil, but now, Mark Han says, "We are a comprehensive animal protein supply chain. We're no longer just a traditional food processor."

Within 18 years, the DaChan Great Wall Group has become a vertically integrated conglomerate that extends from the farm to the dinner table.

"DaChan Great Wall is like Coca-Cola, holding its brand in one hand and filling soda bottles with the other," Mark Han says, proud that his company is a manufacturer with a brand name.

The Group's interests range from upstream operations such as animal feed and flour production and chicken breeding, to downstream restaurant chain brands such as Goody House, Gino Café and Gino Bakery, Burger King, Japanese pork chop chain Saboten, and the world-famous dumpling restaurant Din Tai Fung (in Beijing and Shanghai).

The first step the company took to become Asia's biggest supplier of animal protein was to gain a foothold in China. In 1990, it acquired a local flour mill in Shenzhen's Shekou District.

Wang Fanming, president of the Flour Milling Group's Great Wall Foods (Tianjin) Co., Ltd., said that at the time, China's market was flooded with cheap, low quality flour, and the company did not want to compete on price or volume. Great Wall, instead, insisted on producing high-end flours for specific uses, such as for baking or making dumpling dough that was on average 20 percent more expensive than the competition. It turned out to be an immediate hit.

'Five Standardizations' Help Farmers Escape Poverty

Of the DaChan Great Wall Group's many accomplishments in China, it is most praised for helping farmers lead more prosperous lives.

"Not even mainlanders have dealings with farmers, and yet DaChan is still willing to raise chickens with local farmers," a Chinese official said to Han Jia-chen. The company built a contract-farming system, using the "five standardizations" to build its chicken empire.

"DaChan standardized the supply of chicks, feed, vaccination, veterinary care and processing of chickens," Dachan Wanda (Tianjin)'s vice president Luan Zhiwen states proudly, standing on the observation deck at the company's hatchery.

The company eventually signed a contract with local farmers, authorizing them to raise chickens using only DaChan's feed and animal medicines. When the chickens are grown, DaChan picks them up from the farmers for processing at their plant.

Early on, DaChan had 2,500 farmers under contract, but has since weeded out the weaker performers and cut that number in half, while at the same time expanding the scale of production tenfold.

"The chicken farmers operating in the hundreds of kilometers between Tianjin and the border with Hebei province have all been nurtured by DaChan," Luan stresses.

One of the best examples of Dachan pulling farmers out of poverty and into prosperity is the Guang Fa breeding farm 30 kilometers away from DaChan's Tianjin plant.

Around a decade ago, the farm's owner, 37-year-old Zhang Guangfa, had nothing more to his name than a dilapidated, straw chicken coop, and had trouble making Rmb20,000 a year for his travails.

But he began cooperating with DaChan Great Wall eight years ago and has now invested Rmb2 million in two coops with automatic feed and water dispensers.

"We earned a net Rmb240,000 annually and within two years bought a Rmb500,000 house and a car," Zhang says with a timid smile. Having hired two workers, he doesn't often have to go to the facility.

Disaster the Mother of Reinvention

Following in step with China's internal reforms in the 1990s, DaChan Great Wall expanded from southern China into the north, building a number of feed mills and chicken processing plants in Hebei and Liaoning provinces.

The company originally wanted to extend its presence to all corners of China, but unexpectedly found itself struggling for its very survival with the arrival of the SARS epidemic and two avian flu scares.

DaChan Great Wall's Tianjin facility was built to fill export orders from Europe and Japan. But it was first dealt a blow in 1996 when Europe banned imports of chicken from China and suffered even more after the SARS and avian flu epidemics in China in 2003 and 2004, respectively, scared people away from eating chicken. The company even had trouble selling eggs.

Unfortunately for DaChan Great Wall, breeding chickens is not like a typical production line that can be shut down immediately. Chickens don't stop growing.

"To protect the rights of the farmers, DaChan Great Wall still fulfilled its obligations and took back the chickens on the farms and slaughtered and processed them on schedule on a daily basis," says Luan, recalling those difficult times with unease.

With over 10,000 tons of chicken meat in his hands and nowhere to go, Luan scrambled to rent space in refrigerated warehouses in the area, but that could not stem the bleeding. DaChan Great Wall lost NT$200 million in 2003, and the market only began rebounding from the depths in 2006 when the avian flu epidemic waned.

"Through two avian flu scares, DaChan built bonds of steel with the farmers, because we proved we wouldn't abandon them in the face of natural disasters," Luan says.

The three epidemics actually compelled DaChan Great Wall to upgrade its disease prevention capability, creating an even greater divide between the company and its rivals that is unlikely to be bridged in the near future.

"Raising chickens depends on more than just technology. Management is even more important," Luan says.

From the very beginning of the process when chicks are hatched, DaChan has put in place strict disease prevention and hygiene controls. The hatchery is isolated on all four sides by high walls, and workers must be quarantined for seven days before entering the area.

As part of the program, the contracted farmers' chicken houses must be at least 30 kilometers away from each other. In addition, the farmers are required to thoroughly disinfect their chicken houses for two weeks before the chicks arrive to feed.

Marching Ahead with Restaurant Brands

DaChan Great Wall not only quietly pursues its agricultural and livestock businesses. It recognized early on the potential of China's domestic demand and branding. Eight years ago, the company overhauled its strategy in China and launched the "DaChan" brand of fresh and cooked meat, setting up a distribution network of more than 300 retail outlets in department stores in Beijing, Tianjin and Dalian. It also operates a chain of 12 Goody House Chinese restaurants and a number of Gino's Café and Gino's Bakery outlets.

"Operating brands is absolutely essential to developing staying power in the mainland market," says Han Jia-chen, himself a gourmet, in explaining his choice of the restaurant business as DaChan Great Wall's next engine of growth.